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cbdMD (YCBD)

Participants
Ronan Kennedy CFO and COO
Scott Stephen Chairman
Kevin MacDermott President
Dr. Sibyl Swift Vice President of Scientific and Regulatory Affairs
Jeff Porter Porter Capital Management
Call transcript
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Operator

Good afternoon. Welcome to the cbdMD Inc.'s June 30, 2022 Third Quarter of Fiscal 2022 Earnings Call and Update. This afternoon, the Company issued a press release that provided an overview of its third quarter of the fiscal year 2022 results, which followed the filing of its quarterly report on Form 10-Q. Today's conference call is being recorded and will be available online along with our earnings press release covering our financial results and non-GAAP presentation at cbdmd.com, in accordance with cbdMD's retention policies. All participants on this call will be in listen only mode. followed question-and-answer be will call by session. a The I to Kennedy, turn Instructions] Operating Company's At conference like time, this Officer. Chief and Ronan [Operator the would over Financial Officer Chief the to ahead. go please Ronan,

Ronan Kennedy

Gailene, XX, third and June update. you, the earnings fiscal XXXX and for quarter all Thank joining you cbdMD's XXXX of call thank

Scientific are and Sibyl On today, the have safe call not cbdMD's does be also circumstances Litigation well to appointed that we of the Stephen. uncertainties securities to any Vice may cause forward-looking website XX, Swift, the www.cbdmd.com member. speak for for to over the as update which and on only be June XXXX. MacDermott; the our With federal these President, including to date, risks Company's We'd to Affairs our quarter future today's on that our ending except remind of Thursday, various SEC, may XXXX, our constitute Kevin report call website occur differ our would to Chairman, SEC's I'd can Any plans in and sec.gov. that forward-looking or actual Form as described indicated, XX-Q under statements the and law. Company's President new Board statements the filings intend after cautions on all other those at harbor the of everyone reflect quarterly by Reform to of or like statements at call and XX, events this XXXX, reviewed with prospects at purposes made cbdMD materially recently remarks as today's of turn August subject Act required that, as forward-looking and Chairman, Dr. Regulatory expectations, risks Private from Scott Securities of and cbdMD statements results like Stephen; about forward-looking that provisions these date,

Scott Stephen

and know the good call appreciate to drive you a place and that leadership Ronan, winning resources you shareholder long-term us joined taken much, very today. our steps the take afternoon, and ensure team continue We to that has joining you strategy, and Thank profitable let the right we have I and Board to in value. right everyone. today will to

been the Our experiencing. business of is the challenges But industry surprising. has many that not is as challenged late, of entire same that

organizations, a investing time, team the are brings has high have -- efficacy high pleased guide standards can science and on is MacDermott the Board is plan. challenges rapid Kevin a commitment vigor. and can believe Sibyl science levels of seat to matters; SKU get profitable with and in shareholder our competition, industry experience ones our say shows entire to achieve the focus products can bolstered in non-independent of We and With appointment quarter retention shop, building with I New positioned both help that experiencing. of our at the recently taking with Swift leadership that the domination. adviser meeting to to action and her so often on winning that Dr. they of highly on make augments the as with execute industry. company same in which fill segment profits of and that that and regulated customer the company. on a delivering light Board and early of in to on hat we consumers successful strong wide His I turn the and are extensive similar of category needs for vision right the consistent a consumers' the industries of XXXX, hired successful meeting impactful of Understanding of went experience the management, and and their data back revenue mistakes adapting in optimization, Directors and growth ensuring price developing a we successfully channels, the that one, executive for we we regulation, shareholders. we variety a team the On and the appointment executing a Board safe appointment Directors. and delivering matters capable lifetime growth light are know our have have and to the growth We and like Kevin leadership analytics, that a is are industries industry-leading believe and experiences strategy focus will understanding place that big powerful team presently President. in In tipping announce delivering to the key Ronan? our be that note, the the our that, the in the to we Ronan. who satisfaction. and has Company I'd will We how rapid years a plan and is leadership the experience Furthermore, and executive the two, growth Board the decades. challenges and crafting, the team what and executive customer right challenges distribution wrong to be earnings in the are we call regulatory influenced our strategic of have the of to experiencing, committed ones the path industry, product central this: and the exceptional begun to quickly stock of and plan of value. Without especially to is Company's consumers, disruptive effective while June vacated for

Ronan Kennedy

and these fundamentals continued of the disruptions, strengthen Thank made Last Street in and earnings. to leadership headwinds the lower you, delivered improved call, we $XX business macro million significantly on cbdMD. Scott. cost commitment The to and on a investor we savings, SG&A Despite goals

XXXX, ending quarter the GAAP $XX loss For from recorded of a operations June million. we

loss of as were we and Excluding the consecutive adjusted our our we hunkered year. a up, Mr. improvement. trends unanticipated they $XX sales income we team Last positive quarter, focused now operating that as indicated inflationary of but ways pressure half and by noncash believe of non-GAAP during Mr. compared occur remain as disruptions these growth have both executing. of prior quarters calendar result macroeconomic adjusted four parting challenges, adjusted in then firmed when down Coffman operating the committed year our the achieved have We income impacted Despite Sumichrast. well operating and on revenue to and of goodwill to impairment million, delivering cut balance this

spend gains flat, our While for future growth in into approximately and traffic and was while revenue website sequentially operated organization. XX% direct-to-consumer May held or and a reducing million $X in The team's positioned leaner our resulted the marketing that with continued line work us we quarter. has began this

are at customers levels. attracting We lower and significantly traffic more investment

are As our and are during to starting direct-to-consumer impact to traffic revenue fine-tune conversion see a the rates. working growing and positive result, we to current quarter

as building the strong current development product investments in third paid in quarter. Our off quarter momentum the presently products during are launched have

needs, important efficacy this improve an process way channels to and geographies. our improve investing products, is to of product continue and and in development markets, ourselves strategically We differentiate believe customer target

and excited our sold chain two with and compared the ongoing of We about and planned have specific our Minor resources asset and cost pipeline and sold. our potential We nimbler quarter on business of a quarters. the disruptions to during goods appreciation focused has equipment. predictable targeted manufacturing one have during a facilities savings now is launches We team efforts a supply aligned have for core depreciating key resulting over We the balance added convenience next strategic aside, a product significant that this our the suppliers is quarter. assortment. drug, robust mass to in channel sheet food, as more

Our regulatory create to anticipate team, news and and opportunities. to is more brand resume come. We growing resonating starting

than We U.S. opportunities focus the moves our take these to where science anticipate longer line distribution the initiatives on in end made up. international some These We of about the of brand, on to opportunities before product, speaking continue execute year. and

disruption, while distraction NetSuite, X, ERP. Oracle year contract. migrating the Effective cited business of to migrated on live terminated all concerns industry August to going we cost Acumatica. drive a after with to continue our and We forward, than our Less dealing successfully the and

pleased executing first to leadership. about been leadership introduce new Kevin speak and I'm cbdMD's the Our team of MacDermott. is about the to tangible according delivering has results To for to plan. new business, welcome our Kevin a addition executive the President, our time direction all our more

Kevin MacDermott

laid has the superior, products customers. with to Thank the into this to Good formulated company, address cbdMD both It's great for needs are situation you, the and Ronan. everyday opportunity to domestically our internationally, of step afternoon. talent of specifically foundation wellness that deliver a a

we category, distributors marketplace and the distribution education our trust retention key offering. component know this and retailers rest because but and encompasses on in the I leaders ones believe the customers, to say existing of that industry only help marketplace the of the As continue will not rest prospective consumers, for focusing our brand growth. drive a acquisition, customers am the This benefits, ongoing value. science, value to see is mature. alike effectiveness and We growth. and on the I the that the to here our existing of our

address effectively customer needs. to our their delight continue products that value base We will loyal with

We value with they who our us customers in win past see the reengage them will proposition. from purchased back casualty have when and

offering. attract growth acquisition customers ones. effectively that promoting successfully our engaging of new in will with and new From We thoughtfully the augmenting by category value there, we our exist will current sustain the channels by who already

partnerships. increasing relationships will sales with our new We by channels additional into strategically enhance capacity, and sales expanding distribution our

products the the globe. locations retail Our around of on shelves are over found X,XXX

increasing our locations in the points on price significant products are at a right footprint count, excites sell-through that base. the retail that right with placing methodically right allotted placing and maximizing an attention We rate our on the door emphasis at

throughout benefits hear backed customers recognize benefits Dr. to will fraught on rates customers them our to drive turn permeate that by will of on is our Swift foundation to our with who Swift. science, false speak with proven. industry the and and research, an our products. forms In the supported I'll of the importance messaging We This progress science that education conversion Dr. multitude the brand share. of You that, is egregious by increase educating are trust to Sibyl call whose which With from cbdMD our not will claims quality products of are the market clinical next, and over provide initiative.

Dr. Sibyl Swift

has years on until today. petition to citizens our FDA February On at supplements X.X my mailed delay almost them to Thank pleasure FDA. or able everyone on expect a the you, petition for not Kevin, to worked need priorities. the before trade to to to we we we cbdMD, on experience the I August our to to be agency discussed XXXX, during and claim talk time That call, at then it's joining dietary leading was do XXXX, the expect additional they substantive and call team Based other Instead, XX, the and response. with apply due XX, state respond. last a the group national FDA

administrative have for claims available are as options this aggressively successful, continue citizens opportunities If position, nonresponsive, the will will open they as our several to be strongly to believe significant petition, we are we us products. stated our and in should market correct. our up we We believe pursue we

completion applications both months. the governments X applications, food to analyzing and assessment review. the stopping placed XX in EU, were both This and We after in anticipate safety are on EU our CBD EFSA all and U.K. hold XX EU the applications Our the dossier. take market. actively June approval by to the a X, risk novel foods full a for expected of U.K. On are the in assessment. now phase novel the the validated is EFSA risk effectively

is more the Our applicant all based to with expected our risk able hold only are substantive to and XXXX. into legally In XX Currently, on and and company's studies risk applications application, In was the entire phase. during company as Rica final several we is MINSA, our analysis. will GAP on Highlighting and explanations lifted active XXXX. being EFSA approved a of engaged they may safety, detailed calendar only U.K., for sold products opportunities risk that are in submission. science conducted concerns, other the by on seeking response during moving assessment, the approval. health be comprehensive EU, analysis will year provide until on hold under cbdMD's our have we cbdMD one emerge the and they our products not Company and remain dedication to safety that the in assessment the the planned to and hold and to be in have market Costa process the currently ministry, is assessment their the answers provided been until application detailed the

We a The health on we currently State occur. ourselves. and for study we to Mexico of dossier XXXX. claims-based are products prepared of the continue stiffness, a University to obtain sleep to products pain, CBD this health immunity, Preliminary our report several marketing natural indicate gain quarter, Health in before and will trial recent with approval safety product in The by unofficial line other human one mood early impact to import authorized clinical as should distributors registrations benefits to submit of measurable on process to the Colorado safety countries, to Paw wellness. efficacy change actively determine inflammation, fiscal Canada, of ways Health sanitary our on to and lead laws with are this positive clinical to and has our and adult healthy Canada change broad-spectrum human in our laws product American and enter in leading concludes the Latin positive is product the engaged could assess participants us we indicate a and market to Canada two mobility in from this multiple are to to results explore the register allow More speculatively, sometime core publish month. our the month. dog dogs of next results results concluding joint outcomes core discomfort Early in

publish products. focused our in to on core XXXX expect proven QX educating benefits launch our findings marketing on and the clinically We our of customers campaigns

our Mr. research call turning Kennedy, safety both growth comprehensive the and Company Before the over of want study markets. international reiterate to and clinical I the into to of domestic the value to

found Our be and to and both EFSA. sufficient safety EU dossier has now by challenged U.K. FSA been the

high in safety cases competitors, dossiers the not While the our met have bar. some of same

the the products and to are shelves We is to credibility major and the they the carry safety data leagues starting our to world. listed have to dossier of opened the safe retailers from sports demonstrate used what athletes and It labels. has doors safety products around are who our major the question brands contain on with ensure on

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lead push and continue with to the science. We boundaries

they job a on government will be trail products NSF drug we test to a its for includes can company while for anyone others they This subject not that just Certified are that workers market NSF attempt the Sport means designation, blazed. fail drug if testing. to for to products. only take customers our with who responders, company we the with Certified only This that assurance the have athletes, is Sport first it may and provide follow not to are the coveted have We a

are of that trust products turn about WHOOP Remember, because our back study efficacy with excited truly time. collection, the to exciting products, takes exploring over It performance to optimize data our and time will biometric actual off we, and like through monitoring consumers to public. potential that investing an research everyday back I in kicked by and are week, science their both profitability just and This approach. the science-first augmented it working and sales to athletic demonstrate be the long-term who products is science provide value to capabilities. the takes repeat would our will is to With with data announce Research cbdMD. a brand and benefits that, build We the our this investor purchases for to cbdMD through of of Ronan. and time, growth

Ronan Kennedy

Total third sales Sibyl. $X.X net quarter you, versus million decrease for of quarter of fiscal sequential sales GAAP for million Thank were the the for XXXX, March XX%. XXXX $X.X ending a of

compared sales quarter net comparative quarter. to Our the XXXX were June for down XX% XX, prior

essentially $X million, quarter, the the quarter. generated e-commerce flat XXXX, by reducing business investment quarterly ending over in marketing despite March our million Our $X.X XX,

despite our quarter XXXX. only fiscal XX% a the e-commerce of in XX% quarter E-commerce a ago, total were the to of net represented Our sales during year our sales compared down spend. third XX% marketing reduction

Our occurred The pipeline XX% wholesale decrease disruptions the retail ending outages. quarter as in the of business, sales during including some quarter sequential the or was sequential fills a well XXXX. to versus as part supply $X.X some is March were down $X stock for XXXX and net million million XX%. to compared prior due brick-and-mortar customers, of causing that Wholesale June year ago quarter chain decline

upper including quarters. initiatives we and refine to significant on fixed of Our gross in the XX% improved the X% is product margin of in of a range XX% up effort third coming reductions result in XXXX sequentially. business, in Based to is The GAAP cost third gross quarter margins reduction to fixed forecast, in mix XXXX, overhead. fiscal profit increase our from anticipate the fiscal through and our our team's ongoing the quarter XX% mid-

expenses. led million $X.X Our of fiscal and also quarter. and related that increase SG&A $X.X $X.X of the includes in the expense categories, $X.X exception almost million XXXX down was to quarter of in prior the third RSU a reduction million, sequentially. of a from expense This amortization forfeited options other totaled and third by all increase depreciation for contra-expense stock drop and the intangibles The during year were million with

as Excluding improvements the to made during as from initiatives. well noncash as year expense, $X.X amortization We fourth stock cost-saving benefits last XXXX. anticipate tied million third our further of from adjustments as quarter well adjusted the additional in million costs depreciation, quarter realization full $XX.X to dropped SG&A for the quarter,

driven year. XXXX nine the areas months June for $XX.X and XXXX, For operating all intangibles. decrease offset partially related expenses, options. to expenses in This fiscal was cash million, contra-expense increases also the by down mentioned prior depreciation in previous million reductions $XX.X ending and almost from decrease stock of amortization XX, in totaled This by includes RSUs the forfeited and

expense, Excluding from adjusted to dropped $XX.X amortization noncash depreciation, our $XX.X cash stock operating comp and expenses million million.

fiscal implemented from the forward. quarter rate fiscal former our price $X have prior fourth goodwill navigated compared an impairment XXXX We totaled first ASC run our of the the reduced operational range under we loss ultimately As of $XX.X expenses our and of We cost period. in operations Overall stock loss from resulting the the that year anticipate GAAP half analysis CEO, the mentioned to separation before, operating significantly be while initiatives triggered quarter. further million during a move in for going caused stock XXX to quarter fiscal ending million the charge. for million saw as price year $X.X the third

mainly of offset million. from the a profit year-over-year $X.X operating was of operations non-GAAP drop $X.X revenue, to million $X.X in costs. $XX.X in loss gross our million, due which impairment attributed goodwill reductions of was our decline The dollars to by is million Excluding in noncash the approximately decrease

operations $XX.X loss Our to ending $XX.X prior XXXX, million the June period. XX, GAAP million in compared nine months from as year totaled

by first gross third The $X.X costs. loss $XX.X dollars in $X.X impairment of in noncash operating tied and is goodwill and fiscal XX.X%. decrease million million of drop a was by the intangibles quarters from decrease $X.X of million year-over-year increase driven revenue, to million of operations during partially XXXX, Excluding offset primarily in profit

accrual loss a nonexecutive XXXX fiscal $X.X Our $XXX,XXX, expense fiscal non-GAAP primarily resulting of for share. decrease manufacturing March the $X.X the in non-GAAP the shares noncash operating third income non-GAAP $X.XX as operating our of in from period quarter remaining in income period the attributed primarily stock $XXX,XXX adjusted The the valuation corresponding million, per our XXXX liability goodwill revaluation expenses, drop million million at and in Other $X.XX consolidated to contingent associated we by $XXX,XXX our to of during lower severance statement are included XXXX. of for market quarter the our changes on of our of quarter. and for issued payments of XXX,XXX profit. earn-out net non-GAAP and the the quarter adjustments compared price December acquisition Development. operating from of related by in to associated charge third separation over of adjusted gain, of third fiscal of non-GAAP depreciation common a revenue gain agreement The XXXX stock revaluation gross to $XXX,XXX shares a reduced quarter expenses in the the with quarter. the during of with in the result contingent May, gain XXXX the our operating well of offset CEO, $XX.X our million prior adjusted loss $X.X operating noncash a the to earn-out $X include as of gain to loss assets and operating end loss decrease the as amortization $XX,XXX liability million Based of and year earn-out corresponds is Sequentially, the adjusted This expenses former sale Cure a with of

in approximately our cash million $XX.X capital approximately approximately operations, quarter strong working XXXX. cash making each million as $X operations equivalents third of the of improvements non-GAAP cash we components from We We and of and the in working fiscal September main $X.X $XX.X $XX.X million equivalents cash used The XXXX, cash. million quarters. million and used of XX, in of cash on and paid to XX, XXXX, include flow $X.X loss adjusted dividends. operating capital next of had million approximately During of $X.X from in cash two of compared million June and anticipate

June decreased current cash flow of XX, from is million. primary A decrease approximately XXXX operations. XXXX, to the assets of XX% our September $XX.X cash Our driver in from

million, As which, AP million June $X.X XX, the expenses. current $X.X of approximately total of as as and $X.X XXXX, were million Company's liabilities accrued

We are not progress, results. pleased with our but the satisfied with

Our on is deliver stock attempts at driven not all of leadership team profit to appreciation, and cost. flashy revenue

a know committed the and up that are beyond. get line end sober of a assumptions delivering around balance has to open and the our profitable I'd growth within We that, to revenue to alike. for shareholders remain the of sheet customers cbdMD plan and We profitable team the can now through for like executed potential focused be on our Q&A. year With by and

Operator

with Our Jeff Instructions] question first Management. [Operator Porter Capital Porter is from

Jeff Porter

-- position Could on evolved? to little me investors? market And give Acquisition? potential that the a through transaction did that sell Have you try color to me you decision the in Adara to how to take interest

Ronan Kennedy

Sure.

us They or So did -- the noise we the close executives. apparently they to after want for it as the mid-June, Adara a were transaction. made of the to requirement to our related them to not CEO, working tied the any target with came Company fielded association had former either and sort

acquisition. to acceptable worked we quickly the order with that were their terms parties continue in for to with them all negotiate So process to that,

Jeff Porter

the a market you're payment accurate? I funds Because contingent it, broadly closes. hedge SPAC to equity your return basically and a getting try read deal you of as of private $X is initial Which to that Is your groups? investment? position million Did Okay. if

Ronan Kennedy

a time fast what say sponsor return would to from time, be investment. And be I rights That's was initial the that. sure able amount correct. part was the the in would the to I was happening of had entity the significant It first right of of making there within that refusal. not operating its go of challenge market how happening was think a and agreement Jeff, given a it

Jeff Porter

next of guidance in to what be forward quarter was some mentioned sort profitable. the into going give it I sales of gain trying you some the have in it Can the million on be quarter. you then -- expense Okay. you going of for target a to $X will insight Do And the fourth think would to I'm be what year? take reduction level

Ronan Kennedy

Sure.

current of a we about in are sort So fourth And our fiscal then the which our are in quarter. relatively SG&A internal at the quarter. forecast, on for forecasting is similar based quarter, forecasting $X million December

Jeff Porter

So your sales, the right sort need to around get a quarter if doing hold, neutral? cash margins flow to be gross math of you'll I'm to $XX.X right, if in million

Ronan Kennedy

remember, tied there's our Yes. I add-backs mean, and some depreciation to amortization and expense. stock

Jeff Porter

-- I'm basis. looking cash just Yes on flow a no,

Ronan Kennedy

this this look, Yes. the mean, think we're at looking in I at I right not providing but guidance time, you're direction.

Jeff Porter

just Okay. And a little more color.

have looked a at capital You mentioned is build? significant sheet, million. because we haven't inventory the balance working that of a little I over $XX

Ronan Kennedy

a don't we have inventory large No, build.

inventory massive closely don't and We to execute managing increase very a are requirement plan. foresee our our

Jeff Porter

Is of -- so normal? is sort receivable, a there is which significant that Okay. accounts

Ronan Kennedy

operating our typical -- sheet pick receivables, accounts mean have and other do up we some I receivable. a Yes. carry receivables on well. balance have sort normal our -- some we do we We of as did

Jeff Porter

Okay.

think time, generating you the have start balance you side guys flow? through you get at cash the the So positive sheet present here to other to

Ronan Kennedy

That's correct.

Operator

question is a Buchler], next [Bob Our private from investor.

Unidentified Analyst

The equity firm that previous as the explanation question. correct? group a for is Charlotte, that to back Adara bought in private the Blystone-Donaldson Going it

Ronan Kennedy

position are already. That in a entity of have -- the correct, sponsor they and is yes, they part

Unidentified Analyst

do. They

Okay.

million that asked again, roughly least -- understand to on just were just able do more $X it sold it. million prior obviously, the $X just a perspective, you have was back. It shareholders' okay. your to anybody. than $X could at so value, least paper how million-plus market at quickly question to right that had guys So they now, And -- I if to have used seems at you But from seems getting it's and all

value And assume, from huge -- so group? where or Company like this wasn't I at or of It the right other to I'm just questioning management, the just There least investors. between, other is would again now. why at relationship no discount seems potential the a is trading stock to shown Blystone-Donaldson board it particular least anything

Ronan Kennedy

related correct. is with There that. parties That associated is no

it Company. situation. for There make decision was is a the lot And think, unfortunately, I had we difficult to of not the a best time.

from a it -- is -- for on would the appears time... larger securities to a of there I to think that paper, while hold The stock lockup a us price have reasonable period right? a require a period period value

Unidentified Analyst

Six months.

think months. I six

Ronan Kennedy

Right.

So...

Unidentified Analyst

for sell just that understand But regardless been... and you certainly -- you the have it. purchase it to I I a -- -- condition guess was of I'm would

Ronan Kennedy

We to yes. mean, had we have have would've more would -- liked have didn't. Unfortunately, I we to time. more look, liked

Operator

no further much for call for does this in questions so queue, today. your With participation. our you Thank conference conclude